The Red Flags Rule was created by the Federal Trade Commission (FTC) for purposes of fighting identify theft and it generally applies to financial institution and creditors. As for a “Financial institution” it’s defined as a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other entity that holds a “transaction account” belonging to a consumer.
As for a “creditor”, it applies to any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. Thus, the Red Flags Rule sets out how certain businesses and organizations must develop, implement, and administer their Identity Theft Prevention Programs, which must include the following four basic elements:
- Identify Relevant Red Flags
- Detect Red Flags
- Prevent and Mitigate Identity Theft
- Update Program
Five (5) Categories for Red Flags Rules | Important Considerations for Businesses
Additionally, the Red Flags Rules provide all financial institutions and creditors the opportunity to design and implement a program that’s appropriate to their size and complexity, and specific for their business. Lastly, it’s important to note that “red flags” fall under the following five (5) categories:
- Alerts, notifications, or warnings from a consumer reporting agency
- Suspicious documents
- Suspicious identifying information, such as a suspicious address
- Unusual use of – or suspicious activity relating to – a covered account
- Notices from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts
Policies and are Critical for Red Flags Rules Compliance | Hundreds Available
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